Monday, March 2, 2015

Wages in the service sector lead

 - by New Deal democrat

Some of the most interesting relationships I've ever uncovered have been the result of total serendipity.  So it was last week when I examined the relationship between wages in the goods-producing vs. service sectors of the economy.

I found that tepid GDP growth is correlated with lackluster growth in jobs in the goods-producing sector, and that wage stagnation is primarily found in the goods-producing vs. service sector.

Here is something I found totally by chance:  wage growth both peaks and troughs in the service sector almost always before it peaks and troughs in the goods-producting sector.

Here are two graphs going back 50 years of the YoY% change in wage growth.  The goods-producing sector is in blue, sercices in red.. First, here's 1954 to 1982:

And here is 1983 to the present:

In every instance but one in the last 50 years (1980) growth in service wages peaks before growth in goods-producing wages.  In all but two (the early 1990s and 2012), growth in service sector wages bottom before those in goods-producing industries.

In 2014, service sector growth started down, followed by the goods-producing industires.  If we see an increase in the growth of service sector wages, it is a good bet that manufacturing and construction will follow.

Unfortunately, because the goods-producing sector has shrunk to a small share of the overall labor force over time, while service sector wage growth led overall wage growth in the 1960s and 1970s:

since then the service sector has so dominated the labor force that since the 1980s, the two measures have become coincident:

So, an interesting phenomenon, but of limited forecasting value.